A Moral Imperative or Moral Hazard?
Posted by YourLoanAdviser Staff
It’s a question that’s as timely as ever: Are student loans a moral imperative or a moral hazard? There are, frankly, clear arguments for both sides. Loans can be a hazard, as they indebt families and/or individual students with huge costs that can take years to pay off. But the truth is this that there are few alternatives. College costs more than it did 25, 10 or even five years ago, and most people just don’t have the liquidity to cover the expense.
However, no parent wants their child to forego a higher education. Thus, it’s a moral imperative.
As Billy Joel so eloquently put it:
“Every child had a pretty good shot
To get at least as far as their old man got.”
And here is where you, the lender, come into the picture. Lenders can and should position themselves to help their customers and, along the way, transform that perceived moral hazard into a moral imperative – because educating our young so that they can be successful is a priority. Even better, that moral hazard can be reduced to a manageable situation that lessens the burden on all involved.
Too often, parents and students rely on credits cards, home equity loans/lines, 401k programs or other risky means of paying for school. That can be a mistake. Credit card debt can mount quickly as a result of astronomical interest rates, and the monies owed can cause a domino effect resulting in myriad other issues. Private student loans are fixed or variable, and people can pay down the loan without fees or penalties. As for 401ks, they’re meant to secure one’s retirement and shouldn’t be touched unless absolutely necessary. Private student loans are the way to go, for parents/students and for banks.
How so for banks?
It’s a relatively untapped market, not to mention an acceptable and reasonable risk. It creates goodwill between the bank and its customers; those parents will be appreciative and those students, when they graduate and enter the workforce, will surely become the bank’s next generation of customers.
You have an opportunity, as a lender, to make a difference in people’s lives. Private student lending can serve as an excellent pillar for a firm’s social responsibility initiatives.
Further, banks offer a personal touch that credit card companies cannot approach. If there’s an issue securing or paying back a loan, a person is available to help assess the situation and rectify it, often by negotiating revised payment options. Many lenders reduce their interest rate after a customer has established a history of paying on time.
It’s all about, ironically enough, educating your customer about the advantages of private student loans. Talk common sense. Talk dollars and cents. And turn that fear, uncertainty and doubt, a/k/a the moral hazard, into a moral imperative.
Questions on how to get started with a private student loan program? Post them below.